Rectification of A Binding Financial Agreement

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The concept of rectification in the context of binding financial agreement is a significant facet of family law. It serves as a legal remedy aimed at ensuring the true intentions of the parties are accurately reflected in written agreements. This discussion explores the principles and conditions under which rectification is granted, with reference to a recent Family Court decision. The framework for such legal action is grounded in the Family Law Act 1975 (Cth), specifically sections 90K and 90KA, which address the setting aside, validity, enforceability, and effect of financial agreements. By examining the interplay of contract law principles and equitable doctrines, this analysis highlights the stringent requirements for invoking rectification as a remedy.

A summary of a recent Family Court decision

Family Court decision
Binding Financial Agreement

Section 90K of the Family Law Act 1975 (Cth) (“the Act”) empowers a court to set aside a financial agreement “if and only if” it is satisfied that one or more of the subsections has been established. These grounds include fraud (which includes failure to disclose a material matter), if the agreement is void, voidable or unenforceable, or a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable.

Section 90KA then provides:

Validity, enforceability and effect of financial agreements and termination agreements. The question whether a financial agreement or a termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts.

Section s 90KA applies when there is a question as to whether a financial agreement is valid, enforceable or effective. None of these immediately encompasses rectification, unless the rectification is necessary to save such an agreement from invalidity.  Rectification is a remedy the High Court might grant, to agreements that relate to the validity, enforcement and effect of contracts. Therefore, in order for rectification to be available under s 90KA, it must be an issue as to whether the agreement is effective. 

The effect of rectification is to amend the terms of a document to accord with the actual intention of the parties. Thus, rectification changes the binding financial agreement so as to accord with that intention which it has failed to record. 

Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.

The court has a general power to rectify documents as a court of law and equity. The basis of the equitable doctrine of rectification merely reforms the instrument in which the parties have mistakenly expressed their agreement.

In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of the document but, by an error, wrote the terms incorrectly.

What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. The mistake as to the writing must be common to the parties and not merely unilateral .

In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the parties had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context ‘effect’ means the legal and factual operation of the instrument according to its true construction.

Rectification of BFA
Rectification of BFA

Rectification is an equitable remedy, the purpose of which is to make a written instrument “conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately”. For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an “agreement” between the parties in the sense that the parties had a “common intention” and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the “agreement” because of a common mistake. Unless those elements are established, the “hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties” cannot be displaced.

The issue may be approached by asking – what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties’ actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.

Conclusion

Rectification remains a precise and narrowly applied remedy in the realm of binding financial agreements. Its application is contingent upon clear and convincing proof of the parties’ mutual intention at the time of the agreement’s execution and the existence of a common mistake that distorted that intention in the written instrument. The Family Court’s approach underscores the remedy’s equitable nature, aimed at aligning the legal document with the true agreement of the parties.

Ultimately, rectification serves as a critical tool in upholding fairness and accuracy in contractual relations, reinforcing the fundamental principles of equity within family law.

To learn more about Binding Financial Agreements and how they may benefit your situation, reach out to the experienced Brisbane Family Lawyers team at James Noble Law.

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